Dennis K.K. Fan

Corporate Governance Mechanisms

This chapter examines empirically the effectiveness of the ownership structure, board structure, and compensation of a sample of Chinese firms over the period from 1997 to 1999. We find that ownership concentration and percentage of employees’ shareholding have positive impacts on firm performance, but the percentage of major officers ’ shareholding does not. The ratio of insider directors is not related to firm performance either. CEO duality has an impact on chairmen’s salaries. However, managerial compensation is, in general, not related to firm performance. Overall, there is only weak evidence supporting the effectiveness of Chinese firms’ internal governance mechanisms.

Combining ordinal forecasts with an application in a financial market

The literature on combining forecasts has almost exclusively focused on combining point forecasts. The issues and methods of combining ordinal forecasts have not yet been fully explored, even though ordinal forecasting has many practical applications in business and social research. In this paper, we consider the case of forecasting the movement of the stock market which has three possible states (bullish, bearish and sluggish). Given the sample of states predicted by different forecasters, several statistical and operation research methods can be applied to determine the optimal weight assigned to each forecaster in combining the ordinal forecasts. The performance of these methods is examined using Hong Kong stock market forecasting data, and their accuracies are found to be better than the consensus method and individual forecasts.

On the Performance of Naive, Analyst and Composite Earnings Forecasts: Evidence from Hong Kong

In this paper, we compare the information content and performance of naive, analyst and composite forecasts in Hong Kong. Empirical evidence shows that superior performance can be obtained by a composite measure combining both analyst and naive forecasts. In addition, analyst forecasts become more conditionally efficient over the naive model as the actual announcement approaches. The superiority and timing advantage of analyst forecasts suggest that more emphasis should be placed on the services of analysts for predicting future earnings figures, particularly when the announcement is approaching.

Regulatory Information, Market Expectations, and the Determination of the Allowed Rate of Return

The purpose of this paper is to explore the implicit structure of expectations involving allowed rate-of-return (ARR) determination and the role of regulatory information in related financial markets. Our approach utilizes two models, allowed rate-of-return determination and excess returns from announcement effects, to study the structure of expectations involved in public utility rate cases. Our results indicate that financial markets do not have complete information prior to the announcement of allowed rates of return and that the source of this informational imperfection may be incorrect expectations regarding the allowed rate of return.